Chapter 7 Managerial Accounting
Daphne's Planter Company produces and sells planters. The manager reported $10,500 in fixed expenses, operating income of $0 at the breakeven point, and a contribution margin per unit of $60. What is the company's breakeven point in units using the shortcut approach?
($10,500 + 0) / $60 = 175 units
Tara's Sewing Service sells designer afgans for $85 each. Unit variable expenses total $50. The breakeven sales in units are 2,500 and budgeted sales in units are 4,300. What is the margin of safety in dollars?
(85x4300)-(85x2500)=153000
Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Variable expenses were $2.00 per balloon and fixed expenses were $5,000. If Brandy changes the price of balloon bundles to $10, how many balloon bundles should she sell to achieve her target operating income of $6,000?
10-2=8 5000+6000/8=1375 She should sell 1375 balloons
Which of the following is NOT true regarding the sales mix?
Companies that sell more than one product should NOT consider their sales mix when performing CVP analysis.
What Excel function would a user select to highlight cells where the profit exceeds the monthly profit goal, as in the table above?
Conditional Formatting
Which of the following refers to the excess of sales revenue over variable expenses?
Contribution margin
You have created the What-If Analysis table displayed above. Which of the following statements is true?
If fixed expenses increase, a smaller number of price/volume combinations will be shaded green because they are acceptable.
The horizontal x-axis on the CVP Graph represents
volume of units
Daphne's Floral Service has a monthly target operating income of $30,000. Variable expenses are 15% of sales. The manager reported fixed expenses of $20,000. What is Daphne Floral's operating leverage factor at the target level of operating income?
$30,000 + 20,000 = $50,000 $50,000 / $30,000 = 1.66, rounded to 1.67.
How can a manager forecast operating income?
(sales revenue × contribution margin ratio) - fixed costs
In the chart above, which price/volume combinations will satisfy the monthly profit goal of $4,900?
Only those combinations shaded in green.
The Heart Foundation is a charity that produces and sells two products, red hearts and purple hearts, to promote health in the community. The manager estimates clients will purchase 2,400 red hearts and 1,100 purple hearts by the end of the next period. The unit contribution margins for red hearts and purple hearts are $2.75 and $3.40. What is the weighted-average unit contribution margin?
2.75x2400=6600 3.40x1100=3740 6600+3740=10340 2400+1100=3500 10340/3500=2.95
(Sales revenue × contribution margin ratio) - fixed costs represents which of the following?
Operating income
The Beach Sea Shop has variable expenses of 35% of sales. The manager reported monthly fixed expenses of $250,000. The monthly target operating income is $65,000. What is Beach Sea Shop's operating leverage factor at the target level of operating income?
4.85
Marla's Publishing Service has $4,800 of fixed expenses. The manager reported the company's operating income as $0, and the contribution margin was 45%. What are the company's sales in dollars, rounding to the nearest dollar, using the shortcut approach to the contribution margin ratio?
4800+0/45%=10667
Lisa's Custom Print Services produces and sells custom seashore prints. The manager reported $5,400 in fixed expenses, operating income of $0 at the breakeven point, and a contribution margin per unit of $50. What is the firm's breakeven point in units using the shortcut approach?
5400+0/50=108 108 units are needed to breakeven
Violet Industries held an annual meeting and reported a new annual budget of $50,000 in total fixed expenses. The new selling price per unit is $58, and the new variable expense per unit is $30. If the manager can reduce fixed expenses by another $10,000, what is the effect on breakeven sales?
58-30=28 50000+0/28=1785 40000+0/28=1428 1785-1428=357 357 unit decrease in breakeven units
Rachel's Candelabra Shoppe sells candles to clients for $6.00 each. The variable cost to produce each candle is $2.25 per candle. The fixed costs are $2,800 per month. What is the firm's contribution margin per candle?
6.00-2.25=3.75
Rachel's Candelabra Shoppe sells candles to clients for $6.00 each. The variable cost to produce each candle is $2.25 per candle. The fixed costs are $2,800 per month. What is the firm's contribution margin ratio?
6.00-2.25=3.75 2.75/6.00=62.5%
MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed donuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. How many dozen chocolate glazed donuts must the manager sell to break even?
8-3.25=4.25 3800+0/4.25=895 895 units need to be sold to breakeven
MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed dunuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. What are the breakeven sales in dollars?
8-3.75=4.25 3800+0/4.28=894.1176471 894.1176471x8=7160
The manager at Vertical Wire Productions reported total sales revenue of $800,000. The variable expenses were $600,000, and there were $125,000 of total fixed expenses. Use the contribution margin shortcut formula to predict the breakeven point in dollars.
800000/600000=200000 200000/800000=25% 125000+0/25%=500000
How might a change in fixed costs affect the contribution margin?
A change in fixed costs does not affect the contribution margin.
Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $240,000. The monthly target operating income is $80,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?
Fixed expenses $240,000 Target income + $80,000 Total $320,000 Contribution margin 60% (Variable Expense of 40%) Target sales $533,333 ($320,000 / .60) Fixed expense $240,000 Contribution margin 60% Breakeven sales $400,000 ($240,000 / .60) Target sales $533,333 Breakeven sales - $400,000 Margin of safety $133,333
Which of the following is NOT true about the breakeven point?
It is the sales level at which operating income is never zero.
Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Brandy was considering reducing the sales price of balloon bundles to $10 per bundle. If the variable expenses remain at $2.00 per balloon bundle and fixed expenses remain at $5,000, how many balloon bundles will Brandy need to sell to break even?
Step 1: New Sales Price - Variable Cost = New Contribution Margin $10 - $2 = $8 Step 2: (Fixed Expenses + Operating Income) / Contribution Margin per unit = ($5,000 + $0) / $8 = 625 balloon bundles 625 balloon bundles
The manager at TV Land Productions reported total sales revenue of $900,000. The variable expenses were $300,000, and there were $325,000 of total fixed expenses. Calculate the contribution margin ratio and use the contribution margin shortcut formula to predict the breakeven point in dollars.
The breakeven point in dollars is $487,476. Sales Revenue $900,000 Less: Variable expenses 300,000 Contribution margin 600,000 Less: Fixed expenses 325,000 Operating income $275,000 Weighted-average contribution margin ($600,000 / $900,000) = 66.67% 66.67% Sales in dollars = ($325,000 + 0) / 66.67% = $487,476 of sales to break even
The Coffee Factory sells two products, supreme and mild. The supreme sells for $120 per case (unit) with variable costs of $90 per unit. The mild sells for $90 per unit with variable costs of $10 per unit. The manager reported $42,600 total fixed costs. The Coffee Factory usually sells three supreme brands for each two mild brands. What is the breakeven point in total units?
The breakeven point in total units is 852 units. Supreme Brand Mild Brand Total Sales $120 $90 Variable Costs 90 10 Contribution Margin 30 80 × Sales Mix 3 2 5 Contribution Margin $90 $160 $250 Weighted-average contribution margin per unit = $250 / 5 = $50 Fixed Costs of $42,600 / $50 = 852 units
The ________ is computed as the total contribution margin divided by total sales.
contribution margin ratio
The vertical y-axis on the CVP graph represents
dollars
CVP analysis
expresses the relationships amongst costs, volume, and organizational profits
The margin of safety
is the excess of actual or expected sales over breakeven sales
The Contribution Margin
is the excess of sales revenue over variable expenses
